ISRI2023: Investing in the aluminum value chain

Panelists at the Spotlight on Aluminum session during the Institute of Scrap Recycling Industries (ISRI) 2023 Convention & Exposition (ISRI2023) spoke about the investments occurring in the North American aluminum value chain as well as potential impacts on aluminum scrap trade between the U.S. and India.

Steve Williamson, North America research manager for London-based CRU Group, said “unprecedented investment” was occurring, "and it's remarkable to see that the aluminum industry continues to evolve, change and grow as it continues its history.”

The market was “precariously balanced” as of mid-April, he said. “That's not good news. That's not bad news. It's just where we are at this point in time.”

China’s role in the value chain also is changing. Referring to primary aluminum production, Williamson said that by 2024, “China's growth season will have ended.” Instead, the country will shift its focus to secondary metals processing, he said.

“The rest of the world also is not investing heavily in primary aluminum,” Williamson said. “And if you're wondering why are we talking about primary aluminum at a secondary metals conference, it's because it's a net-sum game, and we need to understand where the primary market is heading so that we can anticipate the opportunities that await us in secondary markets.”

He added that secondary aluminum demand from 2020 through the summer of 2022 was in its heyday. Supply tightness led some consumers to overbuy. Some still are dealing with inventory surpluses as of the second quarter of this year given the “strong inflationary headwinds” that are reducing aluminum demand, Williamson said.

Given that 1985 was the last time a new aluminum rolling mill was built in the U.S., it’s remarkable that three large investments—Novelis, Steel Dynamics (SDI) and Manna Capital Partners—have been announced in the U.S. that integrate recycling and remelt centers “not as ancillary investments but with secondary metals at their heart,” he said. However, “Reality has set in and taken some of the bloom off of those announcements.”

While Williamson said these projects continue to proceed, they have been slowed by the lead time needed for the mill assets. “Human assets also will affect their ability to ramp up.”  

The additional 2 million tons of rolling capacity scheduled to come online will result in scrap flow changes, Williamson said, as some of the scrap that normally was directed to the Midwest is redirected to Texas and the Southeast as some new capacity is further south and southwest than before.

He also noted that a potential used beverage can, or UBC, deficit of 437,000 tons could arise with the new capacity additions.

Williamson said Novelis, SDI and Manna appear to be factoring in “friendshoring” or onshoring into their capacity expansions.

Given the expected tightness in UBC availability and the desire to serve more automotive customers, aluminum scrap consumers see the need to access more of the obsolete aluminum scrap that is available. That is where Sortera Alloys comes in. The Indiana-based company has developed technology that uses X-ray fluorescence and artificial intelligence (AI) to sort twitch or tweak, shredded aluminum grades.

Ben Pope, vice president of commercialization at Sortera Alloys, said these grades represent the “largest untapped aluminum pile in the world,” with 10 billion pounds of these mixed aluminum materials potentially being created annually. Forty percent of the scrap contained in these mixed metals is wrought aluminum, he added.

Pope said vehicles manufactured 12 years ago contained 300 pounds and those made today contain 500 pounds. He added that in about 15 years, the amount of twitch that's available in North America will double as a result. This aluminum is wrought-intensive in the form of sheet and extrusions, he said, and creates a silicon challenge for the industry.

Pope added that primary domestic aluminum supply is declining, while demand for flat-rolled products is growing. “The only scrap left is unsorted.”

In light of the situation, Novelis has formed a partnership with Sortera to sort 5000- and 6000-series clips from these shredded, aluminum products.

As U.S.-based aluminum producers embrace scrap, India’s regulators are making it more difficult to do so, said Dhawal Shah, managing director of Mumbai-based Metco Ventures LLC.

The Bureau of Indian Standards (BIS) is the country’s government body that works to create standards for everything that is traded in India, he said, including scrap metal.

While Shah said India is taking a “quantum leap forward towards our green transition,” he added that the transition is “not that straightforward.”

India “substantially” has increased the volume of aluminum scrap it imports from the U.S. over the last five years, Shah said, from 250,000 tons in 2018/19 to nearly half a million tons from April 2022 though January 2023. That growth has been driven by the huge secondary aluminum industry in India, he added, noting that at 3.6 million passenger vehicles per year, India is the world’s fourth-largest vehicle producer. The growth in electric vehicle production in the country will increase the use of aluminum by the automotive industry, while nonautomotive applications also are growing.

Shah adds that a paradigm shift to recycling is occurring in India. However, he said he believed that establishing the BIS for aluminum scrap will lead to the growth of the primary aluminum industry in India.

In addition to establishing aluminum scrap quality grades, the BIS also calls for “complicated” scrap sampling procedures that include dividing a lot into five equal sublot, he said. A gross sample is then prepared by taking a minimum of three increment samples of roughly equal weight from each sublot and blending them together. The weight of the gross sample should be 5 percent of the weight of the lot. The gross sample is dividing into three equal parts, one of which is tested to determine its metallic and nonmetallic content, while the other two are saved for retest.

Shah said the sampling procedures are “Impractical” given the scale of the imports.

He added that while the BIS for aluminum scrap is in draft stage currently, it is “inevitable” that it will be finalized within three and six months from mid-April. “It could include some more tweaks,” Shah said, noting that the Material Recycling Association of India is in discussion with the developers daily. “By end of the day, we just want to make sure that it does not scuttle growth, it does not sort of short supplies the industry needs to grow,” he said. “But I just hope, and we all kind of hope that you know, it does not take India backward.”

ISRI2023 was April 17-20 in Nashville, Tennessee.